I Traded STOCK OPTIONS as a Beginner - and it Actually Worked!

I keep hearing I could use less money but make more money rather than buying and selling a stock all while having limited risk. Sounds too good to be true, but it might not be. Introducing stock options. What the heck is a stock option? What the heck is all of that weird lingo associated with stock options? And how could this be way more profitable than just investing or trying to short a simple stock? That is what I want to find out in this video. I will be investing my real money into stock options and hopefully turning a fat profit. Let's see what happens, but you gotta focus. Now after embarrassingly over a week of trying to research and understand what the heck a stock option was and how it could benefit me financially, going through all this strange lingo, etc, etc, I came to the conclusion that the best way to understand was not to try to memorize every stock option trading strategy on the surface, but rather just to understand the basics and then from there extrapolate. So actually understanding what something is rather than just memorizing all the terms, etc. So with that being said, what the heck are the basics to understand? Well first of all, One stock option is just a contract between a buyer and a seller that gives the buyer of the stock option the right to either buy or sell 100 shares of a specific stock at a fixed price, which is referred to as the strike price, before the stock option's expiration date. Now the stock option that gives the buyer the right to buy typically 100 shares of a specific stock at a fixed price before the expiration date is referred to as a call option, whereas the stock option that gives the buyer the right to sell typically 100 shares of a specific stock at a fixed price before an expiration date is referred to as a put option. I got it. Call, buy, and then put. I'm going to put that out for sale. Sell. That's how I'm going to remember. Now the reason these are called options is because it gives the buyer of these contracts the option to exercise these contracts. They don't have to exercise these contracts if they don't want to or if they're not profitable. But keep in mind, the buyer had to purchase this contract from the seller. Now also the buyer doesn't have to exercise these contracts to make a profit or a loss. They can choose to sell these contracts to another buyer before the expiration date. So to understand how this works and to hopefully be profitable, I decided to start this experiment by acting as the buyer and purchased my first stock option. Would I choose a call option or a put option? Well based on the current market and an opportunity that I thought I saw, I decided to start with a put option. So I don't know if this is the best strategy, but I got to try something and I think I have an idea. So I was browsing finance on the internet and I came across some news stories on the internet saying that a judge denied Coinbase's motion to dismiss the SEC's lawsuit. So Coinbase has been in a little bit back and forth with the SEC. Personally I don't think this is that serious, but I feel like this news is making it look serious. And whatever the appearance is, is what I think is going to affect the stock price. And because this is kind of negative news, I think that means in the short term Coinbase's stock price is going to fall a little bit. So anticipating that drop in price and wanting to use options to benefit from this, I'm going to go over to trade coin options. I'm going to go coin buy put. That is going to be the right to sell this at a future price. And I'm going to pick a price that is around the current price because I'm expecting it to fall in the future. Now I do see up here it says expiring March 28th. That's literally tomorrow, but that's okay because I think this dip in the price is going to be very short term. I think in the long term, just personally my beliefs, I think coin is actually going to do really good. Price is $262.21 right now. I see $262.5. That is a strike price giving me the right to sell this at that price in the near future, expiring in one day. So I am going to purchase this one. So I'm going to pay $600 for the right to sell 100 shares of coin at $262.5. Coin shares aren't lower at March 28th. This option will expire worthless. You're also paying regulatory fees of 0.3 per contract. Okay. All right. Submit. So what did I just do and why did I do it? Well, because I just saw some negative news for Coinbase circulating around the internet about Coinbase's battle with the SEC, I felt like this would negatively affect Coinbase's stock price in the short term. So I purchased a put option at $6 a share that would theoretically allow me to sell 100 shares of Coinbase stock at the fixed strike price on that contract, which in my case was $262.5 a share. And if I wanted to exercise this contract, I would have to do so before the expiration date, which in this case was in one day. Now, a little confusing where it says ask price $6. Remember, each stock option typically resembles 100 shares. So this actually cost me $600 plus 3 cents for regulatory fees, I guess. Now, something you might be wondering is look at the current share price of coin is $261.34. And the put option that I just bought allows me to sell it higher than that at $262.5. Why don't I just immediately exercise this put contract for if I bought 100 shares at the current share price and then sold those 100 shares at the strike price based on the math, I would be up $116, right? Well, remember, I paid $600 for this contract. So you have to subtract that $600 from the 100 shares times the strike price to actually get the net profit or loss if I decided to exercise that contract. Now for some quick stock option terminology regarding a put option, whenever the put option contract strike price is greater than the market price of that stock, it is considered in the money. And even though in the money sounds all good, that doesn't always mean it's profitable because you have to factor in the price you paid for the contract. In fact, doing the math, the coin share price would have to drop about five more dollars before I would even break even by exercising the contract. But even if it dropped significantly lower and I could profit greatly by exercising the contract, I still probably wouldn't be able to afford 100 shares of coin stock for I started with a thousand and only had about $400 left. The math on that is Coinbase's stock would have to fall to under $4 for me to be able to afford 100 shares, which is extremely unlikely. So what the heck am I doing then? Well, my play here wasn't to exercise the contract, but rather buy and then hopefully sell the contract to somebody else for a higher price if that contract would become more in demand because more people would see coin stock falling and want to own a put contract on it that would allow them to sell it at a higher price. So I'm almost like shorting it, but rather than shorting it, the max loss that I can incur would just be the amount I paid for the contract, which would kind of sound like a safe haven. You can't lose more than the contract where on like a margin account, you can kind of like lose unlimited amounts. However, because the contract's expiration date was only in one day and I only have a thousand dollars here, that was a lot of money to put on the table for me. Hopefully I was right about this and would make some quick money and not lose it. So maybe, maybe I'm an idiot. So my plan is to sell this before it expires because I'm expecting the price to drop a little bit more, people to freak out, and then the prices for these options to sell them at a higher price should increase. Looks like I was correct. Coinbase's stock continued to decline slightly and the price of that option that gave me the right to sell based stock at the once higher price. Well, that contract's price increased and I literally just sold that option right now. And with all the fees incurred and everything, we just made $69.92. So not too bad to start, right? It looks like I made a decent call. More like a put. So what actually happened was simple. The market price of the put option contract that I purchased increased. So I sold this contract for more than I purchased it. Now, interestingly, from the time I purchased and sold this put option contract, Coinbase's stock only fell about $2. However, I made nearly $70 buying and selling this put option contract, which is kind of crazy. If you think about that compared to, let's say if I wanted to try to short coin stock, for example, with just a one X leverage, if I would have invested the same amount I paid for that put option contract into shorting coin, well, I would have only made a few dollars. But with an option that I paid $600 for, I made $70 in just a couple of hours. And once again, to reiterate a point I was talking about earlier, if I would have hypothetically exercised the contract instead of selling it, well, I would have been at a loss because of the price I had to pay for that contract. Looks like I just made a good play. Hopefully I could keep up the streak. And because I just had success with a put option, the next thing I wanted to try was investing in a call option. So welcome to day two of this experience. Today, I am going to purchase a call option. So if I purchase a call option, it gives me the ability to buy a stock at the strike price before the expiration date on that call option contract. Now I've been totally like into the tech stocks and all that stuff, but my wife actually suggested to me to check into some of the automotive stocks. Looking at General Motors, it does look like in the, on the five day it is in an uptrend. So hoping this will continue this slight uptrend, at least in the short term, I'm not going to hold this for long. Finding the GM stock on Robinhood and then going over to trade GM options right here on Robinhood, the shortest call options for General Motors looks like it ends in eight days, April 5th. And that's actually the timeframe I want to pick in because I'm really just running this experiment in the short term to see if I can be consistently profitable. I guess for experimental purposes here, I'm going to buy an option where the strike price is just below the price. And then it's going to be 71 cents per share that I can buy for $45. But because it's options, you got to times it by a hundred, a hundred shares in one contract. So 71 cents times a hundred is $71. And then there's a three cent fee for I think regulation, something like that. Well, so why would I want to buy this contract rather than just buying General Motors stocks? Well, the way I'm understanding it is it kind of gives you like a little bit of a safety net, right? If General Motors stock completely collapses, well, my max loss is just the amount I paid for this contract right here. I'm just going to, the contract will be useless and I lose that money. But if General Motors stock climbs significantly, well, this contract to buy General Motors stock at, at this cheaper price, $45, it's going to become worth a lot more, or I could just exercise the contract, purchase it at $45 and then sell it for like a thousand dollars. Not that that will happen, but just like if it did, yeah, you know what I'm So just like the basic put option, the call option also gives you kind of like a safe haven where the most you can lose is the amount you paid for the call option contract. Where in contrast, if I bought 100 shares of GM stock, which was currently around $45, the max loss I could incur is the price I paid for all of that, which would be $4,500. Now that is if the stock price fell to zero, which is unlikely, but still. So now that I actually own this contract here, I can sell it back to the market if I want to, or I can exercise this option and then purchase a hundred shares for the strike price on the contract and then try to sell that back. But as of right now, I'm just going to hold on to this options contract. I'm going to take a look at it, if it goes up or down, but yeah, for the, shoot, it looks like it's going down. I can't be, I can't be, I can't be shook by small movements. Okay. Was that a good idea or was General Motors price peaking and now it's going to come back down? So, ah, man. No, I'm going to let this sit for a bit. I feel like General Motors might increase throughout the day and then that will bring the call option price up. Theoretically, we'll see what happens. So unlike put options, call options are typically purchased when the buyer is bullish on a certain stock expecting that price to go up in the future. And well, luckily in my case, the price on GM stock went up, therefore increasing the market value of the call option contract. I just purchased 10% in less than an hour. Oh, should I just sell right away and just keep taking these like little profits or should I get greedy and just kind of see where this goes the rest of the $10 now? Oh, dude, dude. I feel like I want to sell it. Cause I want to say I took a profit. Like it would suck to come back in like two hours and it's like negative 30 or something like that. You know what I mean? But then like the greedy part of me was like, bro, just let it ride. You This is like the trial run before we do this for like 30 days. You know what I'm saying? We're learning. We're learning. All right. Let's just see what happens over the next couple of hours. I might sell it later in the day on my phone. And this is where I kind of messed up. You see, I waited until later in the day. And when I still saw a profit and went to try to go sell this stock option, well, I wasn't able to because the market was closed. Maybe I was just too used to messing around with crypto from the last experiment. Crypto trades 24, 7, 365, whereas the stock market has opening and closing times. And to make matters worse, the next day was good Friday, which was a holiday and the stock market was closed that day. And then it was the weekend where the stock market is closed. So I wouldn't be able to sell this call option until the following Monday. Oh, so something I'm figuring out is if all else stays the same, the closer we get to the contract's expiration date, that could make the price of the contract decrease because there's less time for the stock to move. That's if all else stays the same. Obviously, with a call contract, if the stock's price goes way above beyond beyond the strike price and the call contract will go up because you can then buy that stock for that cheaper price. But if all else stays the same, the closer we get to the expiration date, well, there's less time for things to change. Thus, the demand for that contract goes down. So when I was up $10 today, maybe I should have sold that. So I had to wait the entire extended weekend until the market would open again on Monday until I was able to sell this call option I purchased. And while this long weekend stuck in limbo had me a little bit nervous, I tried to stay positive and hope for the best on Monday. Wait, first we eat, then we talk business. Right. Don't buy anything I own because I'm going to sell it. You got to give me advice. My advice is they're all a bunch of crooks. They're all trying to get your money. And the whole goal is for you to get someone else's money. Here's the number one rule, as I tell you right now. Don't even buy if you're going to sell for less. If you're going to sell that thing for less money, don't buy. Simple. Best ones to buy would probably be like Kimberly-Clark because everybody's going to need something to cry on. Don't sell for less. If you're buying something, there's no reason to sell for less. It would be just totally stupid. Unless it's going to zero. Then don't buy. Simple. Right? Yeah. We've learned a lot of things and we're going to go apply these. We learned so much. So after a long weekend and getting some non-financial advice from my dad, on Monday, a little after the market opened, I was in for a pleasant surprise. So it is Monday right now after the long weekend. If I look at the call option that I bought right now, it's at $18 in profit. 23%. That's the part. Good thing I waited. I'm not going to get greedy. I'm so I bought that for $77 and I sold it for $92. Dude. So I couldn't believe it. The price of my call option actually went up and I was able to sell it on Monday for a profit. And we can see probably the reason for this. If we look at the price of GM stock on the day that I bought this call option, then on the day I sold it, there was some volatility early on, but at the time I sold it, GM stock went up to $45.62. The call option that would allow someone to buy this at the strike price that stayed fixed at $45. Well, the demand for that went up increasing the market price of that contract. So I was able to easily sell it for more than I bought it for. And the beauty of the call option contract was I only had to risk about $70 in order to make this $15 profit. Whereas if I would have spent my total $1,000 to purchase GM stock at $45.15, then to sell it at $45.62, well, I only would have profited $10. So dang, when options work, they work great. So wow, guys, I cannot believe that actually worked in my favor both times, but yeah, I'm pretty excited right now. Made profit on both of those trades and I guess my predictions worked out for me. But I do have to stay humble and I do have to remember it isn't always going to work out that way. That could have swung the other way and I could have just as easily lost just as much if not more than I made. So thankfully it worked out though. Now all I've really done so far was I bought and then I sold these contracts. And luckily in my case, both of them I sold for a profit. However, I never exercised any of these contracts and actually used them to purchase or sell a stock at the strike price. And even though I sold them to somebody else on the market, I never was the one responsible for covering the contract in the first place. And this leads me to the next phase that I'm going to explore next, but this is going to be in a future video. So a quick little breakdown you can think about if you're anxious to know how that's going to work. Remember in the beginning of the video when I was the buyer and I purchased the put option contract and I paid a premium? Well, a cash covered put would essentially be as if I am the seller who is responsible for this contract selling it and collecting that initial fee of, in the beginning of this video, $600. So it's like I'd make an immediate $600, but with the hope that nobody on the market would exercise the contract. Or if they did, that the loss I would incur from that wouldn't go above the $600, so I would still be in a profit. And then the same goes for the call contract. I would sell this to someone on the market, immediately get that premium that I'd have, so immediately be in a profit, hoping no one would exercise this contract. But if somebody did out there exercise this contract, I would hope that the difference wouldn't be more than the premium I received. And if that's still confusing, well I'm planning to hopefully break it down easier in a future video where I actually do this in real life and hopefully, hopefully things go well. Anyways, in summary, all I did in this video was I bought and I sold these contracts. Luckily, I was able to sell them for more. Things worked out in my favor. But remember, nobody can predict the market. There's a ton of other macro and micro factors that could affect any price and it's just like, it's always risky, right? And that is kind of another beauty of the stock option. I mean, at maximum, the most I was going to lose would be the price I paid for that option. And the reason for that being, well, these options have an expiration date. Eventually, they will be worth nothing if you don't do something with it before that expiration date. So it seems like there's always a cost, there's always a benefit. It's just, what do you want to risk? What do you want to play with? What are you comfortable with? I hope this video broke things down and made them easier to understand. With that being said, remember to always do your own research. None of this video was financial advice. I just shared with you the information the best I could to the best of my knowledge and share with you my experience. I hope you guys enjoyed this video. I hope you all have a great day. Don't forget to subscribe. Stay tuned. More videos coming out. Peace. I will see you all in the next video. All right. What's up, bro? How you doing, man? You're here to make a deposit. Yeah. Hey, you know, well, no, no. Actually, I'm just here because I had a question. Yeah. Oh, dude. No, no, no, no. For sure. For sure, dude. Yeah, totally. What's up? I heard that stock options are a potential opportunity that I should look into. And I was just wondering, like, what is a stock option? Yeah. No, dude. Yeah, totally. That's that's totally, totally an option. Yeah, we totally do that. It's like an option. You know what I mean? It's like you. Yeah. No, dude. What's your name again? I'll look up your account. Yeah. Oh, yeah. No, for sure. It's it's it's Kevin Buckingham. Shoot. All right. You got 300 in here. Dang. Well, yeah, I only made it. Wait, I thought I was supposed to be earning interest. Oh, yeah. No, we're we're definitely interested. Definitely interested. So we do here. But, you know, we're probably going to need to see some more green before we can start doing some financial footwork. You know what I'm saying? Anyways. Yeah, totally, dude. All right. All right. Good. Well, actually, I had another question. Yeah. What's up? Yeah. So what is a call? Oh, dude, you don't have to call. You can just text. No, I mean like a like a like a call option. Oh, no. Oh, yeah, dude. No. Yeah. Long weekend, bro. Long weekend. Yeah. Call option. Totally. That's a. So, you know, you have an option and then you like you call it, you know, so you're like calling an option, you know, like it's just like you went to school for this stuff. So it just kind of like clicks. But like you got to just like, you know. Yeah. Totally cool. Totally cool. Don't worry. Don't worry, bro. Don't worry. Totally cool. Totally cool. Your truth is valid. And yeah. So anyways, I've got a three three o'clock that is coming in. So, you know. Yeah, dude. All right. Yeah. Of course. Yeah. All right. Thank you for helping me with this. I'll be back with some more deposits later. Totally cool. All right. All right. Cool. Yeah. All right. Yeah.